What China’s ‘consumption downgrade’ means
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What China’s ‘consumption downgrade’ means

JUST after the second half of the year, economists and financial analysts noted Chinese consumers were scaling back on discretionary spending en masse, triggering a debate about the so-called ‘consumption downgrade’ of the middle class amid the US’ trade war with Beijing.

In China’s bustling major cities, many urban-dwellers are reportedly scampering to find ways trim spending their disposable income, scaling back on a myriad of small luxuries and creature comforts that include everything from taxi rides to romantic dinners, to designer handbags.

According to global market intelligence company CEIC in September, China’s economic growth for the third quarter was at 6.5 percent, the slowest seen in a decade where consumer spending has slumped in the latest reading.

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The underperforming growth rate was softened by the encouraging 9.3 percent growth in retail sales for the first three quarters of 2018, but still, a dispiriting figure compared to last year’s growth of 10.4 percent last year, according to Nikkei Asian Review.

While the downgrade is a constant subject of dispute, the belt-tightening among China’s market of 400 million consumers spells bad news for Beijing, which is counting on the middle class to help it weather through the trade war by offsetting related export losses and to help maintain steady economic growth.

Frugal living

Shanghai-based 25-year-old financial analyst Wang Ren would wake up earlier in the mornings to use the subway to go to work instead of the more expensive and faster taxi. By train, Wang spends only RNB21 (US$3), instead of a cab which costs five times more.

He is among many who have scaled back on their lifestyles by watching Hollywood movies off-peak hours where tickets were at half price and trading in candlelight dinners for takeout, a contrast to their old routine.


People nap on a bed at an Ikea store to escape the heat outside in Hangzhou, in China’s eastern Zhejiang province on July 24, 2017. Source: Reuters

Observers have looked to the Pinduoduo, China’s fastest growing e-commerce platform for budget-friendly shopping, as yet another indicator of the “consumption downgrade”.

In January, the number of Pinduoduo’s active users surpassed the reigning no 2 e-commerce giant, JD.com, bringing along with it an unfavourable label the company could not shake off, according to the Diplomat.

Other indicators of belt-tightening included higher sales of pickled vegetables, cheap booze, and instant noodles, and increased reliance on bike-sharing and other forms of cheaper transportation.

Pressured middle class

The bulk of Chinese citizens have complained of higher costs of living and stagnant incomes as among reasons driving them to tighten their belts.

A young finance officer surnamed Deng who works with a film company in Beijing, told South China Morning Post that she occasionally took on small loans, not to buy luxury items or cosmetics, but to merely pay her rent.

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“I would be rich if I didn’t have to pay the rent,” she said.

“I buy cosmetics infrequently, almost all of my spending is just on food.

“The so-called consumption downgrade doesn’t apply to me, since I have never had a chance to upgrade my lifestyle,” she quipped.

What does this mean?

The government, through the National Development and Reform Commission, is looking to find ways in which the lower-middle, middle- and upper-middle income groups could have higher disposable income.

But even as China’s per capita income neared US$10,000, the distribution of national wealth does not all trickle down to the consumer, as the government takes a growing share of the income, with China’s middle-class households struggling to pay for housing, education, health care and child care, among other things

Among apart from dipping numbers in the purchase of foreign cars like BMW and Volkswagen, pundits are seeing declining numbers of Chinese home buyers taking up properties in countries like Australia.

Last year, Chinese nationals spent AUD$1.3 billion (US$936,670) on Australian houses and properties, almost a third of the A$4.6 billion (US$3.3 billion) spent in 2014. With the recent consumption downgrade, the prospect of the inclining numbers looks unlikely.